U.S. Treasury bonds tumbled, sending yields to the highest in nine months, on speculation President-Elect Donald Trump's pledge to slash taxes and increase government spending will fuel higher inflation.
The 10-year Treasury yield climbed 0.17 percentage point to 2.03%, according to FactSet, breaching the 2% threshold for the first time since late January. Prices for the bonds fell, since inflation typically erodes the value of securities with a fixed-rate income stream.
The yield may reach 2.25% by the end of the year, roughly on par with levels at the start of 2016, as investors become warier of higher prices and as the Federal Reserve proceeds toward an expected rate increase next month, said Brian Brennan, a fixed-income portfolio manager at the $813 billion money manager T. Rowe Price.
A further jump in the yield is likely "if there's any hint toward the U.S. having more leeway to do more on the fiscal side, which would increase investor inflation expectations," Brennan said.
Trump has made across-the-board tax cuts a cornerstone of his economic plan, pledging on his campaign website that "no one will pay so much that it destroys jobs or undermines our ability to compete." The business tax rate would drop to 15% from 35%, while corporations would get a one-time chance to repatriate foreign profits at a rate of 10%.
At the same time, Trump says he would support more spending on transportation and telecommunications infrastructure, clean water and electricity transmission as part of a "golden opportunity" to accelerate economic growth and create thousands of jobs in construction and manufacturing.